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The impact of the recession on workers’ compensation claims

The recent recession resulted in a substantial decline in the number of workers’ compensation claims, a decline much greater than the reduction in hours of work, according to the latest Issue Briefing from the Institute for Work & Health.

The number of workers’ compensation claims in Canada declined more sharply during the 2008-2009 recession than in years previously, and declined more than the reduction in recorded hours of work. The decline in claims was greatest in provinces and sectors that experienced the sharpest fall in employment. This is according to the latest Issue Briefingfrom the Institute for Work & Health (IWH).

At the peak of the recent Canadian recession, hours of work declined by almost five per cent in the Ontario labour market compared to the previous year, says IWH President and Senior Scientist Dr. Cameron Mustard, who wrote the Issue Briefingwith former IWH Research Associate Jeremy Petch. But the number of new compensation claims declined by 18 per cent in 2009 compared to 2008, far exceeding the decline in hours worked during the same period.

As reported in the Issue Briefing, Mustard and Petch set out to answer a number of questions about the 2008-2009 recession in Canada: Did claim frequency decrease? Were the effects of the recession on claim frequency greater in those provinces hardest hit by the recession? Did those industries hardest hit see the biggest decreases in claim frequency?

To find answers, they examined workers’ compensation claim counts and hours worked in five provinces (Ontario, Manitoba, Saskatchewan, Alberta and British Columbia) and in three economic sectors within these provinces (construction, health care and transportation). Data on hours worked and employment were acquired from Statistics Canada’s Labour Force Survey. Counts of lost-time and no-lost-time claims were obtained from workers’ compensation boards.

Not unexpectedly, the decline in the number of compensation claims during the 2008-2009 recession was greatest in those provinces hardest hit by the recession. For example, the largest decreases in hours worked were seen in British Columbia (5.1 per cent), Alberta (5.6 per cent) and Ontario (4.6 per cent). Their decreases in number of compensation claims far exceeded the percentage drop in hours worked: 27 per cent in British Columbia, 19 per cent in Alberta and 18 per cent in Ontario. By contrast, the drop in hours worked was less substantial in Saskatchewan (2.7 per cent) and Manitoba (1.9 per cent), as was the drop in number of compensation claims (nine per cent in both provinces).

Industries hardest hit by the recession also saw the biggest decreases in claim frequency. The construction sector was substantially affected by the recent recession in most provinces and predictably saw larger drops in claim volume compared with the health-care sector, where hours of work were largely unaffected.

Looking behind the numbers

The Issue Briefingpoints to possible reasons why the rate of compensation claims per hours worked is lower during recessions than during times of economic growth:

Inexperienced workers have a higher risk of injury compared to experienced workers, and reduced hiring during recessions leads to fewer inexperienced workers.

Because hazardous industries tend to be affected more by recessions, their employment numbers fall more than others do, with a large impact on overall injury rates.

Some workplaces will retire the oldest and least safe equipment during periods of economic slowdown.

During economic downturns, the pace of work is slower in some sectors, reducing the risk of injury.

Workers fearing job loss during a recession may defer filing claims.

What we all want to know is the degree to which the very substantial reduction in compensation claims following the global financial crisis in late 2008 can be attributed to lower workplace risks, and to what degree it can be attributed to decisions made by workers and employers about filing claims, says Mustard. Although he notes that the hours of work and claim numbers reported in the Issue Briefing cannot completely answer this question, he suggests that lower workplace risks are probably responsible for the greatest proportion of the substantial decline in claims observed during the Canadian recession.

Although the key drivers remain elusive, it’s worth noting that measures such as safer machinery, better trained workers and attention to the pace of work may help workplaces—recession or no recession—further reduce the risk of injury and, therefore, keep workers’ compensation claims on a steadily downward trend, says Mustard.

The latest Issue Briefingbears out what was reported in an Issue Briefingreleased in March 2009. The earlier briefing showed that, relative to the long-term trend of declining claim rates in North America, the frequency of workers’ compensation claims per hours worked tends to go down in recessions and increase in times of economic recovery.